May 2018

Working Out What Mortgage You Can Afford as a Physician

If you’ve just qualified as a physician – or have been working for a few months, and are beginning to think about getting onto the property ladder – then there’s a good chance you’ll have grappled with the idea of “how much can I really afford” when it comes to getting a home loan.

As a Physician, you’re on a relatively good salary – which is likely to increase with experience – so you’ll be faced with some pretty attractive offers from lenders.

Before jumping in, and accepting the maximum offer, however, it’s well-worth working out whether you can really afford the mortgage your lender offers.

In this post, we’re going to look at a few ways you can plan your mortgage’s affordability.

How To Calculate Your Monthly Costs

Thankfully, there are – today – a variety of very efficient mortgage calculators online, which basically do all of the hard work for you.

It’s worth looking at your income (after tax), along with ANY and EVERY outgoing you can think of. Don’t forget to add in costs like insurance, closing costs, and also don’t forget about the downpayment, as this may factor into things if you’re relying on savings to ease the initial repayments.

By law, lenders are not allowed to approve you for a mortgage if the repayments would take up more than 35% of your monthly income. This is under the Mortgage Reform and Anti-Predatory Lending Act, which itself is a section of the Dodd-Frank Act, brought into law back in 2010.

While this doesn’t affect you, it’s worth bearing in mind that most lenders will typically avoid approving you for a mortgage if the repayments will take up more than 30% of your monthly income.

(They leave themselves some degree of wiggle-room.)

You’ll also find some lenders adopt a 28% stance – particularly if your debt-to-income ratio (known as a DTI) is high, or if you have a poor credit history or unsteady employment.

A Word of Warning:

Many physicians take out mortgages higher than they can reasonably afford, thinking that in a few years time their salary will have increased sufficiently to cover the mortgage repayments.

(Some even have the aim of paying off their mortgage early, once they receive a pay-rise, only to find that things don’t go to plan, and they become financially unstable.)

For this reason, it’s never worth borrowing more than you can afford… and while legislation like the Mortgage Reform and Anti-Predatory Lending Act has helped somewhat with this, there is still an onus on YOU to ensure you’re borrowing an amount you can afford.

If you feel you need help, don’t be afraid to contact a financial planner or mortgage expert. They’ll be able to take a look at your monthly income, and outgoings, and determine exactly what you can afford.

Above all else, however, don’t just feel that because you’ve been offered a higher mortgage loan than you though, you have to take it.

You’re going to be paying your mortgage for many years to come – and if your repayments are too high, or you find yourself short on money every month, it’s not just your finances that will suffer; so always be thorough, honest with yourself, and realistic; you’ll be thankful for doing so later down the line.